Monthly Archives: September 2016

The IRS Has Proposed Increases in Installment Agreement Fees.

The IRS is proposing a revised schedule of user fees that would take effect on Jan. 1, 2017, and apply to any taxpayer who enters into an installment agreement.

The proposal, which is one of several user fee changes made this year, reflects the law that federal agencies are required to charge a user fee to recover the cost of providing certain services to the public that provides a special benefit to the recipient. Although some installment agreement fees are increasing, the IRS will continue providing reduced-fee or no-cost services to low-income taxpayers.

Installment Agreement Fees

The revised installment agreement fees of up to $225 would be higher for some taxpayers than those currently in effect, which can be up to $120. However, under the revised schedule any affected taxpayer could qualify for a reduced fee by making their request online using the Online Payment Agreement application on IRS.gov website. In addition, there would be no change to the current $43 rate that applies to the approximately one in three taxpayer requests that qualify under low-income guidelines. These guidelines, which change with family size, would enable a family of four with total income of around $60,000 or less to qualify for the lower fee. Also, for the first time, any taxpayer regardless of income would qualify for a new low $31 rate by requesting an installment agreement online and choosing to pay what they owe through direct debit.

The top rate of $225 applies to taxpayers who enter into an installment agreement in person, over the phone, by mail or by filing Form 9465 with the IRS. But a taxpayer who establishes an agreement in this manner can substantially cut the fee to just $107 by choosing to make their monthly payments by direct debit from their bank account.
Alternatively, a taxpayer who chooses to set up an installment agreement using the agency’s Online Payment Agreement application will pay a fee of $149. Similarly, they can cut this amount to just $31 by also choosing direct debit.

Proposed Fees

Here is the proposed schedule of user fees:

  • Regular installment agreement: $225
  • Regular direct debit installment agreement: $107
  • Online payment agreement: $149
  • Direct debit online payment agreement: $31
  • Restructured or reinstated installment agreement: $89
  • Low-income rate: $43

Further details on these proposed changes can be found in proposed regulations (REG-108792-16 in case you were wondering), now available in the Federal Register. The IRS welcomes comment on these changes, and a public hearing on the regulations will take place in Washington, D.C. For details on submitting comments, just take a look at the proposed regulations.

By law, federal agencies are required to charge a user fee to recover the cost of providing certain services to the public that confer a special benefit to the recipient. Installment agreements are an example of a service that confers a special benefit to eligible taxpayers. Agencies must review these fees every two years to determine whether they are recovering the costs of providing these services.

In the past, the IRS often charged less than the full cost for many services in an effort to make them accessible to a broader range of taxpayers. But given current constraints on agency resources, the IRS can no longer continue this practice in most cases.

Nevertheless, the IRS intends to continue providing reduced-fee or no-cost services to low-income taxpayers. For that reason, the IRS will continue subsidizing part of the cost of providing installment agreements to low-income taxpayers.

You can find out more information, on the IRS’ website, about the IRS User Fee Program.

If you are contemplating an Installment Agreement or have other issues regarding back taxes owed the IRS, give us a call at (845) 344-1040. We are here year-round to help you.

You can find out more about us on our website => SolidTaxSolutions.com.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

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The House Has Passed Legislation Regarding the Itemization of Medical Expenses!

Hello Everyone! I just wanted to share some good news with you about a possible change regarding itemizing medical expenses.

The U.S. House of Representatives Voted on a Bill That Could Affect Your Taxes.

The U.S. House of Representatives Voted on a Bill That Could Affect Your Taxes.

So, last week (September 13 to be exact), the U.S. House of Representatives passed a bill titled ‘Halt Tax Increases on the Middle Class and Seniors Act’ (the bill is H.R. 3590 which you can view right here => H.R. 3590), by a vote of 261 to 147, that would lower the Adjusted Gross Income (AGI) threshold for an itemized deduction for unreimbursed medical expenses—from 10% to 7.5%—for all taxpayers, regardless of age under the Affordable Care Act (ACA).

Under the ACA, taxpayers may deduct from their AGI, to reach their taxable income, the cost of unreimbursed medical expenses that exceed a certain percentage of their AGI. Following a law change in 2013, individual taxpayers under the age of 65 could only deduct medical expenses when they totaled at least 10% of their AGI – the value of expenses above this 10% threshold can be deducted.

The Bill passed by the House of Representatives would prevent a change to the threshold for those over 65 years of age, which from the end of this year (2016) would have increased the threshold applying to this category of taxpayers from the current 7.5% to 10%.

The House Ways and Means Committee Chairman Kevin Brady (R – Texas) welcomed the Bill, he said: “Before Obamacare, Americans could find some relief in their ability to deduct high-cost, out-of-pocket medical expenses on their taxes. … This Obamacare provision is a tax hike, plain and simple. It makes paying for care even more difficult for individuals, families, and seniors who may already be struggling to afford the care they need.”

The National Taxpayers Union added that the Bill would “have an enormous impact on the budgets of American families. … Over 10 million taxpayers every year use this deduction to cushion the burden of medical expenses and this tax increase would cause an undue financial burden to seniors and those struggling with chronic medical conditions.”

However, the Center on Budget and Policy Priorities noted that “Congress has already delayed the medical device tax, the health insurance tax, and the excise tax on high-cost health plans (the so-called Cadillac tax). Repealing the increase in the medical expense deduction threshold would encourage efforts to scale back still other revenue provisions of health reform.”

Ways and Means Committee Ranking Member Sander Levin (D – Michigan) also criticized the unfunded nature of the legislation, and pointed out that it would reduce revenues by $32.7 billion over 10 years, according to the Joint Committee on Taxation. He went on to say, “approximately two-thirds of the tax benefit from [the bill] will accrue to taxpayers earning $100,000 or more.”

Mr. Levin noted that the White House has issued a Statement of Administration Policy that “strongly opposes” the Bill and confirmed that it would be vetoed if presented to President Obama for his signature. The Statement added that the Bill “would repeal a provision of the Affordable Care Act that limits a regressive, poorly targeted tax break for health care spending.

If you would like to see the results of the final House vote for this bill you can view them here.

Do you think this has any chance of actually becoming law?

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

Politics! You’ve Got to Love It.

Running for office presents candidates with a number of opportunities to slip up. This is particularly a problem when the issue is a complicated one. As an example, let us take a look at taxation (surprise. surprise, surprise). Taxation can present traps for unwary candidates who are not careful with how they articulate their position.

Recently, there has been a call for exempting the value of Olympic medals from gross income. Some people think it’s wrong to require winning athletes to pay taxes on pieces of metal symbolizing their achievements. I will stay neutral on this, but the point of this post isn’t whether an Olympic medal exemption makes sense. It’s to point out what happens when that issue becomes campaign fodder.

Senator Charles Schumer of New York, a Democrat, has introduced legislation that would add an Olympic medal exemption to the Internal Revenue Code. According to this news story, his Republican opponent, Wendy Long, has criticized both Schumer and the proposal. She called the proposal “another example of cronyism in the tax code.” She went on to say, “It makes no sense. My contention is that giving tax breaks as he does to his favored ones – the Broadway stars, the Olympic medalists, the hedge funders – means that a greater burden is placed on the average New Yorkers who toil in obscurity but work just as hard and are as deserving of a tax break.” She made mention of members of the military, asking “Where’s the tax break for them? Even if they come home victorious and have won a war, instead of the 400 meter freestyle, no tax break for winning?”

So, three thoughts ran across my mind when I read that article. All three, thoughts, kind of “didn’t make sense”.

First, the Broadway tax break to which Long apparently was referring is not a tax break for Broadway stars. It is a tax break for those who invest in live theater productions, making available to them the same tax break already in existence for television and movie productions. On top of that the measure in question was the extension of the tax break, which had been enacted previously with an expiration date. I’m not necessarily a fan of this particular tax break, but I’m even less of a fan of a tax break that treats television and movie productions more favorably than live theater. What matters is that this tax break accelerates tax deductions for investors who, Ms. Long states, are not members of “….the middle class that Schumer pretends to champion.” Therefore it is a tax break pretty much for the wealthy among us, a tax break in line with many others supported by the political party under whose flag Long is running. It would be great if she made it clear that she opposes the long-standing pattern of Republican tax breaks for the wealthy, but if she is elected she might find herself at odds with at least some of her political colleagues in the Senate. But still, describing the tax break as one for the actors casts the issue in the wrong spotlight.

Second, the tax break for hedge funds has been attacked primarily by Democrats and although some Republicans have joined in the criticism, perhaps seeking something that dresses them in populism, most Republicans and their supporters have opposed any attempt to change the tax break. Some even demand lower taxes for carried interest, as described in this article. Again, it is great to see another tax break for the wealthy coming under attack from a Republican, but what happens to Long’s Senatorial career if she is elected? And what happens to Schumer, a Democrat, who breaks ranks with his party and opposes elimination of the tax break for carried interests? Politics is a strange, wacko world and, in this instance, the two candidates are taking positions contrary to their labels. Perhaps they should switch parties? Hmm!

Third, there exists a variety of tax breaks for members of the military. Long is playing on emotions when she suggests there are no tax breaks for them. Internal Revenue Code (IRC) Section 112 excludes from gross income compensation paid to members of the Armed Forces for serving in a combat zone, or was hospitalized on account of injuries incurred while serving in a combat zone. IRC Section 122 excludes from gross income certain portions of retirement pay way too complex to describe in one sentence. IRC Section 134 excludes from gross income the value of most allowances or in-kind benefits provided to a member or former member of the Armed Forces. I am not aware of any instance in which the IRS has required a member of the Armed Forces to include in gross income the value of any military honor, medal, badge, bar, or ribbon awarded to that person. Making it appear as though there are no federal tax breaks for members of the military does not nurture confidence in a candidate’s tax policy prowess.

So, I feel that there are far better ways to criticize an exclusion for Olympic medals than to confuse the issue with references to tax breaks for Broadway stars, hedge funds, and members of the military. The merits, or lack thereof, of an Olympic medal exclusion are, and should be, a separate matter.

Just my 2 cents.

What do you think?

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

How Often Should Business Income Be Taxed?

A recent post (August 26, 2016) on the Tax Justice website was titled:  Why We Must Close the Pass-Through Loophole? Well that ‘kinda’ caught my attention as I was trying to think what the “loophole” might be?  A loophole is a provision that can be used beyond its intended purpose because the rule is not written specifically enough. When a rule is being used as intended, it is not a loophole. So, for example, sometimes the mortgage interest deduction is called a loophole, but it is not. People deducting interest on the mortgages on their primary and vacation homes are using the rule as intended.

A figurine struggling to hoist a barbell with the word tax written on each end of the barbell.

Double Taxation! Is It Necessary?

The “loophole” that was the subject of that blog post is large businesses operating as partnerships rather than as corporations. Partnerships, S-Corporations and Sole Proprietors do not pay corporate income tax. Instead, the income is taxed directly to the owners and only one level of income tax is paid at the federal level (and state level). In contrast, C corporations pay the corporate income tax AND when they distribute earnings (dividends) to shareholders, the shareholders pay income tax. Therefore, C corporation income is taxed twice.

That just happens to be the way it works in our (i.e., the United States for readers abroad) tax system. It doesn’t have to work that way and not all countries double tax corporate income. In the U.S., there is some relief in that ‘qualified dividends’ received by individuals are subject to the lower capital gains tax rate.

Over the years, there have been numerous studies by the government and various organizations on how to ‘integrate’ the corporate tax. In other words to have corporate income taxed only once.  There are numerous ways this can be done.  Two easy ones would be to not have a corporate tax (only tax dividends) or not tax dividends (only tax corporate income at that level when earned).  Neither is ideal because not all corporations pay dividends and not all corporate shareholders are taxable (a lot of corporate stock is owned by tax-exempt organizations).

The Tax Reform Act of 1986 called for the United States Treasury to study corporate taxation. This resulted in two reports issued in 1992 on corporate integration (January 1992 and December 1992).  Most recently, Senator Orrin Hatch, chair of the Senate Finance Committee (SFC) reported that he is working on a plan for corporate ‘integration’ and the SFC held two hearings on an approach called the ‘Dividends Paid Deduction’ model (May 17, 2016 and May 24, 2016. You can also see the Joint Committee on Taxation report prepared for the hearings right here.

Some of the advantages of corporate ‘integration’ include:

  • Treats all business entities similarly (although this also depends on the corporate versus individual tax rates applicable to business income).
  • Removes or lessens a corporation’s tax preference for debt over equity.

So, I will ask the question a bit differently from the The Tax Nook blog post: why not eliminate double taxation of corporate income and find a way to tax all business entities similarly?

So, what do you think?

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

Other Social Media Outlets: Facebook.com/SolidTaxSolutions (or just click on the icon on right sidebar of this page).

Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).